European Law Firm Cost & Profit Survey
Survey of European Law Firms Finds That U.K. Firms Lead in Profitability But Are Hampered by Higher Overhead CostsNew Providence, NJ - Press Release - January 6, 2005 - U.K. law firms are the most profitable in Europe, according to new research by LexisNexis® Martindale-Hubbell® and European Lawyer magazine. The new research, entitled The Financial Benchmarking Study of Leading Law Firms in Europe, was carried out by accountants BDO Stoy Hayward and questioned law firms across Europe on aspects of their financial performance from partner leverage to annual IT spend.
The research reveals that the average level of fees generated by fee earners in U.K. law firms stands at Â?277,400 ($332,880), while across Europe the average is Â?226,600 ($271,920). The top U.K. fee earners generate in excess of Â?322,300 ($386,760) compared to their European counterparts at Â?246,600 ($295,920).
The survey reinforced the anecdotal position of U.K. partners leading their European colleagues in terms of both fee income and profits per partner. U.K. fee income per partner topped almost Â?2.4 million ($2.88 million) compared to Â?1.45 million ($1.74 million) in Spain, the next highest, and a European average of Â?1.27 million ($1.5 million), while profits per partner peaked in the U.K. at Â?629,000 ($754,800) compared to the European average of
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The research also looked at other financial issues, such as the amount of working capital tied up in work in progress and unpaid fees. In this area, the U.K. has much to learn from Europe. The average "lock-up" period in the U.K. is 183 days, compared to the best performing country, Belgium, which has a median lock-up of only 84 days. These figures are a significant brake on profitability and the true extent of the issue in the U.K. is revealed by unpaid costs in "lock-up" for over 203 days, or nearly seven months.
The U.K. position is further compounded when partner leverage is removed from the income and profits per partner calculations, leading to a different set of conclusions to be drawn about the market. While the U.K. firms are the most efficient of all those surveyed, squeezing higher revenues per fee earner than any other jurisdiction, due to their higher cost base, the ratio between income and cost of the leading U.K. practices is actually the lowest of all the countries surveyed.
The survey analyzed each firm's income less expenditure as a percentage of their total income; this provides a 32% return in the U.K. compared to 53% in Sweden, 51% in Germany and a 47% European average. The survey reveals the actual cost of the overhead premium in the U.K. where fee earners cost on average 33% more, while U.K. lawyers employ more support staff and, as would be expected, spend more on IT, training, marketing and professional indemnity insurance than in Europe. Perhaps surprisingly, one of the only areas where costs are fairly consistent is office space, with both the U.K. and Spain allocating 13% of expenditure, with 11.9% in Belgium and 12.9% in Germany.
According to Paul Gazzolo, chief operating officer of New Providence, N.J.-based LexisNexis Martindale-Hubbell, "We believe this benchmarking study will enable global and European law firm managers to develop a comprehensive understanding of the real cost of running a European legal practice and give law firms the opportunity to compare themselves to their peers. The figures reveal not just financial facts but the management performance and processes behind them. Furthermore, international law firms with a presence or seeking to establish an office in Europe will benefit from financial and management market intelligence provided by the report."
Nick Carter-Pegg, professional practices partner at BDO Stoy Hayward who conducted the research, commented: "A key measure of profit earning potential for law firms is the level of fees generated by each fee earner and this reinforces the leading position of U.K. law firms across Europe. However, once partner leverage, the number of fee earners per partner, is taken into consideration, then U.K. law firm partners have approximately double the fee income of the European average which they need to support their cost base and maintain their profitability levels."
The report, which includes statistical data from key markets across Western Europe, is expected to become an annual benchmarking survey, with additional jurisdictions added in future.
About LexisNexis Martindale-Hubbell
LexisNexis Martindale-Hubbell is the leading client development company for the legal profession and is the number-one resource for information about lawyers and law firms worldwide, consulted daily by lawyers, business executives and consumers. With 4 million searches per month, this unrivaled network connects lawyers and law firms with their clients and potential clients, facilitates communication between members of the legal profession, and makes available a wide range of biographical information and professional credentials regarding attorneys in private, corporate and government practice. It is powered by a database of more than 1 million lawyers and law firms around the world.
Martindale-Hubbell is also the leading provider of Web sites for lawyers and has recently announced a number of new products and services to facilitate client development initiatives for lawyers and law firms. These client development vehicles include opportunities to publish articles on the Web and in respected industry newsletters, invitations to speak at highly regarded professional conferences, and new products designed to market law firm practice area and industry groups. LexisNexis Martindale-Hubbell is part of the LexisNexis Group, a member of the Reed Elsevier Group plc. For more information, visit www.martindale.com.
About LexisNexis
LexisNexis (www.lexisnexis.com) is a leader in comprehensive and authoritative legal, news and business information and tailored applications. A member of Reed Elsevier Group plc [NYSE: ENL; NYSE: RUK] (www.reedelsevier.com), the company does business in 100 countries with 13,000 employees worldwide. In addition to its flagship Web-based research service, LexisNexis, the company includes some of the world's most respected legal publishers such as Martindale-Hubbell, Matthew Bender, Butterworths, Les Editions du Juris-Classeur, Abeledo-Perrot and Orac.
About BDO Stoy Hayward
BDO Stoy Hayward's Professional Practices Group specialises in advising law firms and helping firms to grow. Through our own professional expertise and by working directly with firms - and the partners behind them - we've developed a robust understanding of the factors that govern professional practice growth. Our objective is to use this knowledge to help our clients maximise their potential. We advise leading law firms on strategy, finance, audit and taxation. Our clients range in size from start-up firms to those in the "Top 100", including multinational firms.
Internationally, BDO is the world's fifth largest accountancy firm with 600 offices in 100 countries across the globe. BDO Stoy Hayward LLP and BDO Stoy Hayward - Belfast are both authorized and regulated by the Financial Services Authority to conduct investment business: www.bdo.co.uk
About The European Lawyer
The European Lawyer, through its journal and its recently-launched cross-jurisdictional comparison reference book series, analyses and comments upon the development of law and practice throughout the EU. The company places particular importance on bringing together policy makers and the legal profession in high-level seminars and debates. In April 2004, the company jointly hosted a major conference with the IBA in Vienna to discuss the impact of EU accession.
The European Lawyer has broad appeal. Its readers include senior and managing partners in the European Union's 25 states, in-house counsel, regulators and academics on both sides of the Atlantic. Each month the journal produces the official newsletter of the European Company Lawyers Association. The immediate past Chair of the USA's leading in house lawyer organisation, the Association of Corporate Counsel (America) Elizabeth Wall, is counsel to the publication: www.europeanlawyer.co.uk
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